Last week, Fitbit purchased the guts of smartwatch maker Pebble. Pebble has been THE crowdfunding success story until now. Each new model Pebble produced was funded through Kickstarter.
But the company has been struggling, with competition from the likes of Samsung, Fitbit, Apple and others. Like many market pioneers, they were overtaken and then beaten down by the second and third wave of market entrants.
The hardware Pebble pioneered has been commoditised. But the software that pulls all the different services and functionality together remains valuable.
Fitbit is also a company under threat. Although their fitness trackers lead the market according to recent research by IDC they face stiff competition. Now that the Apple Watch Series 2 has fixed the original release’s shortcomings, by adding GPS and water-resistance, and China’s Xiaomi is pushing up the sales ladder (helped by their focus on the sub-$50 market) the wearables market is starting to settle into the same pattern we see in other industries.
Fitbit, Apple, Samsung, Garmin and Xiaomi will battle it out for the top few spots in the market with everyone else fighting for the scraps. Over time, that top five will change but it will remain stable for now.
Looking back to look ahead
In the late 1990s and early 2000s one company dominated the business mobile device market. That company was Blackberry. But Blackberry still, to this day, has failed to recognise that they are not a hardware company. Their “secret sauce” was software.
What made Blackberry special was the Blackberry Enterprise Server software and the client software that ran on its devices. While the hardware was a symbol for the company, Blackberry (it was called RIM in those days) failed to recognise the difference between the company’s value and the symbol of that value.
It’s the difference between folding cash in your hand and a bank statement.
Fitbit, I think, has recognized that the days of its hardware business being a highly profitable revenue stream are numbered. The kinds of sensors, displays and other components they use are commodity items, easily purchased and assembled at factories in China. That means margins on hardware will continue to tighten.
The real value
The difference between a good fitness tracker and an ordinary one is software.
If Fitbit is serious about being in the fitness and activity tracking business for a long time, they need to put a massive focus on software. A good example is the Fitbit Blaze.
It doesn’t play nice with other platforms. For example, while the new Apple Watch will be getting a native Strava app, there’s no way for this to happen with the Fitbit – yet.
On the other hand, Pebble has a system for programmers to develop bespoke apps for their watches.
If Fitbit can bring that to their devices then they have the potential to challenge the likes of Apple and Samsung. And they will have a big advantage over those players by being a multi-platform option. Apple and Samsung want to lock you into their respective ecosystems. But Fitbit could appeal to both camps, overcoming the challenge of creating a multi-platform infrastructure that can be enjoyed by anyone and build on the social networking capability Fitbit users love.
A decreased dependence on hardware also means we could see a Fitbit watch app on other devices. If this thread on Fitbit’s forum is anything to go by, there is a definite desire to see Fitbit become a true multi-platform player.
What does the Pebble purchase mean for Fitbit?
Fitbit is preparing for the future. I think this will be a future where they will charge for access to their software platform if you bring your own, non-Fitbit, device. If you buy a Fitbit device, you’ll get access for free but otherwise I think it will become a subscription service.
It will also result in Fitbit devices directly integrating with other services. For example, while you can sync data from a Fitbit device to third parties such as Strava, the development of native apps will do away with the synchronisation. When you finish an exercise session, the data will go directly to your preferred service.
Fitbit will become a more flexible platform. The appeal of Pebble’s platform was the way it encouraged third parties to create their own apps and enhancements, making the hardware more useful.
This will be a huge boon to Fitbit – much like the App Store and Google Play store are for iPhones and Android devices respectively.
Fitbit’s purchase of Pebble doesn’t secure the comany’s future. But it will help them immensely.